Upload
others
View
1
Download
0
Embed Size (px)
Citation preview
Copyright © 2009, Technology Partners International, Inc. All Rights Reserved.
Global Lessons in Achieving SourcingEfficienciesHow to achieve cost-cutting goals while remaining productiveand competitive
Arno Franz
Partner and Regional President Asia Pacific
August 2009
1Copyright © 2009, Technology Partners International, Inc. All Rights Reserved.
Agenda
What is the impact of the current environment on sourcingconsiderations? The need for cost savings to drive greater efficiencies whilst the business
remains productive, competitive, innovative and sustainable
What are the most effective strategies being employed locally andoverseas? What are the changes to outsourced IT services that are likely to give the
largest and quickest cost reduction with the least risk
What are the technologies or outsourcing services should you invest in nowto drive cost efficiencies
What should be the nature of the conversation you have with ServiceProviders about outsourcing cost reductions
Questions and Answers
2Copyright © 2009, Technology Partners International, Inc. All Rights Reserved.
TPI is the Leading Sourcing Advisor by Any Measure
Americas250 advisors
Asia Pacific40 advisors and India-based
researchers and supportpersonnel
TPI HubsLocations of Engagements
EMEA80 advisors
08/08
Americas250 advisors
Asia Pacific40 advisors and India-based
researchers and supportpersonnel
TPI HubsLocations of Engagements
EMEA80 advisors
08/08
Advise on more outsourcing businessthan all other advisors combined
Work on more sourcing-specificengagements than any other company
Average marketshare 2006-8 fordeals >$25M
Advise on ~20% of the global ITO + BPOtransaction value each year for 20 years
257
366
487
595
659
2004 2005 2006 2007 2008
Provide sourcing advice to 45% of the world’slargest buyers and almost all major providers
Have most dedicated sourcing advisorswith the broadest global coverage
Since 1989: 2,978+ sourcing engagements, 751+ transactions valued at more than US$277B
#1 in Customer Feedback
TPI was named the top full serviceoutsourcing advisor by The Black Book of
Outsourcing 2009 for the secondconsecutive year. We were also named
number one for exceptional client services,IT Outsourcing and HR Outsourcing.
3Copyright © 2009, Technology Partners International, Inc. All Rights Reserved.
What do the numbers tell us?Continued softness in global outsourcing contract awards compared to 2008levels.
However, comparison of 1H09 and1H08 shows a more dramatic story
The Bad News is…
Globally, Telecom had its second best half-year ever – largely driven by mega-relationships in Asia Pacific
Asia Pacific TCV increased more than 150%over 1H08
Americas ITO TCV in 2Q09 was up 6% Q/Q
The Good News is…
TCV down 22%
ACV down 28%
Global BPO TCV in 1H09 hit a five year lowat $6.9B
Decline of EMEA TCV in 1H09 to pre-2008levels; however, EMEA still remains theleading region in TCV awarded
Traditionally strong industries such asBanking, Insurance, and Oil & Gas, havebeen weak through the first half 2009
Global Q/Q comparisonsindicate slight movement
ACV down slightly (5%) 2Q09
TCV up slightly (5%) 2Q09
12.420.5
6.915.1
3.3
13.518.2
8.5
33.0
Americas EMEA Asia/Pacific
1H07 1H08 1H09
Industrywide Contracts With TCV > $25M:TCV ($B) of Contracts Awarded: 1H Comparison
4Copyright © 2009, Technology Partners International, Inc. All Rights Reserved.
The World Has Changed
The current economic situation hasput additional pressures onbusinesses to drive down the totalcost of outsourced business supportservices, whilst still achieving theexpected benefits
However, whatever is done toaddress issues with outsourcedbusiness support functions, the over-riding requirement is to reduce costsand get there quickly
Within this over-riding need to reducecosts, there are multiple symptomsthat can indicate under-lyingproblems or issues that can lead tocost reduction
Using the Balanced Scorecardframework, some possible issuesarising are:
Organisational View
“I’m sure I’ve gotpeople doing workthat I thought wasoutsourced”
“My retainedmanagers lackmorale, but I don’twant to lose keypeople”
“Our providergovernance lacksdirection and bite”
Operational View
“I can not cope withconflictingdemands fromcustomers”
“There’s a lack ofinnovation shownby the provider”
“I find that we arestill focused toomuch on the ‘how’and not that ‘what’ ”
Financial View
“I’m under pressureto reduce overallsourcing costs”
“There’s a lack ofclarity of where ourmoney is going”
“I’m not sure whatI’m paying theprovider for”
Customer View
“I’m sure servicequality hasreduced”
“There’s a lack ofresponsiveness tomy demands”
“Why should I payfor poor service”
An holistic view of symptoms can indicate underlying issues
5Copyright © 2009, Technology Partners International, Inc. All Rights Reserved.
If There Is An Opportunity, How Do I Address It ?
Smart companies have asked themselves: Are the outsourcing arrangements delivering the promised financial and
qualitative benefits?
Are we pulling the right levers with respect to extracting benefits from the sourcingarrangements?
Are the outsourcing arrangement (s) still price competitive with the market? Arethe terms competitive and/or appropriate?
Is our service provider leveraging the most efficient service delivery model?
Is our contract service management and governance regime optimised to get themost out of our sourced relationships?
How rigorously have we managed the service providers contractual deliveryobligations?
For each of the above: What is the current actual situation?
How do we know?
What can we do about it?
In what time-frame?
6Copyright © 2009, Technology Partners International, Inc. All Rights Reserved.
Tactics For Delivering Results – Our Agenda
Now is the time for quick introspection and then bold action Study the current environment – but not for long
Decide what can be done quickly
Initiate longer term activities
Outsourcing supplier considerations
Unilateral actions
Collaborative actions
7Copyright © 2009, Technology Partners International, Inc. All Rights Reserved.
Revisit Your Outsourcing Strategy
What are we receiving under our current contract? Services
Services levels
Resources
Price
What are our short and long term business needs?
What governance arrangements do we have in place to get themost from our service provider/s?
Business partnership
Experienced team (on both sides - client and supplier)
Do we know the current outsourcing market? Experienced advice to understand cost-efficiency options and tradeoffs
Current market prices
8Copyright © 2009, Technology Partners International, Inc. All Rights Reserved.
AsIs
Re-structure
Re-compete
New Contract with currentService Provider
Modify Current Contract withcurrent Service Provider
Current Outsourcing Experience
Extent & Nature of ContractualChanges
Current and Future BusinessRequirements
Single Vendor vs. Best-of-Breed
Sole Source vs. Competitive Bid
Market Prevalence
Pros / Cons ofoptions
ClientRequirements
Single Contract - Sole Source
Single Contract - CompetitiveBid
Best of Breed - Sole Source forEach Tower
Best of Breed – Competitive Bidfor Each Tower
Pre
ferre
dC
ombi
natio
n
Options
Need to quickly determine the preferred course of action from the set of available choicesPrimary Options – Decision Tree
9Copyright © 2009, Technology Partners International, Inc. All Rights Reserved.
Outsourcing Largest and Quickest Cost ReductionOptions
Work with your service provider to restructure contracts that alignswith your IT and business environment with a forward-lookingprovision
Contract renegotiation rethink what's feasible and still meets thedemands of the business
Align service levels
Indentify opportunities for lower-cost outsourcing options in termsof Software as a Service (SaaS) and utility or cloud-basedinfrastructure offerings
Benchmark with the right to evaluate and negotiate based oncurrent market prices
10Copyright © 2009, Technology Partners International, Inc. All Rights Reserved.
Initial Set ofServices
RetainedServices
OutsourcedServices
Ser
vice
Man
agem
ent
and
Go
vern
ance
This boundary is key to proper management of the service providers Best practices are emerging for this boundary Many clients under-perform SM&G services or rely on the service provider to perform
these services, essentially creating the boundary in the wrong place
This boundary is key toa workable division ofdelivery responsibilities
This boundary variesbased on client needsand service providerservices
Dependencies of thesegroups on each otherrequires particularengagement of theSM&G Team
Inappropriate allocation of responsibility for performing tasks as well as non-performance oftasks leads to problems in sourcing arrangements
Understanding Responsibilities is Key to Successful Sourcing
11Copyright © 2009, Technology Partners International, Inc. All Rights Reserved.
Outsourcing Largest and Quickest Cost ReductionOptions - Continued
Sourcing groups should challenge their assumptions abouttraditional definitions of IT "offshoring" and identify what really canand can't be delivered from lower-cost delivery locations
Even under financial pressures business change should not be puton hold service-level agreement architectures should includebaseline operational metrics as well as business-orientedoutcomes
Review governance arrangements with your service provider –business partnership, is crucial for long-term success. Outsourcingworks when you have a good governance model in place, and anunderstanding of what you want to get out of the outsourcingagreement
Make sure you understand your contract and have the right peopleinternally managing the contract
12Copyright © 2009, Technology Partners International, Inc. All Rights Reserved.
What Can Be Done Immediately (where to invest now)
Projects – usually the most discretionary activity Triage each project
Is it a mandated project with committed due dates?
Can the project be mothballed for a period?
In the current economic environment is the business case for the projectstill viable?
Can the overall project backlog be rescheduled with less resources – andmore time?
Applications with few users
Do they still make sense to support?
Can they be performed some other way?
Environments with few users (e.g. Windows NT) Is now the time to make the effort to modernize?
Is there any way another platform can be used to do the work?
13Copyright © 2009, Technology Partners International, Inc. All Rights Reserved.
What Can Be Done Immediately - Continued
Equipment with low utilization Can it be consolidated?
Can it be unplugged permanently – perhaps due to shrinking demand?
Can it be unplugged temporarily – such as development environments whoseprojects are put on hold?
Equipment not needed Equipment used by laid off staff needs to be dealt with
Make sure support is not being paid for
Consider lowering licensing requirements (e.g. items licensed by the seat)
Defer – things that can wait a bit
Hardware refresh - Unless it is a contract commitment (which might berenegotiated) consider running existing hardware longer. Maintenance mightincrease a bit but things don’t fall off a cliff at the end of the refresh period
Software refresh – if the current platform (e.g. Windows XP) is good enoughdefer the upgrade
14Copyright © 2009, Technology Partners International, Inc. All Rights Reserved.
What Do We Need To Know To Make Good TacticalDecisions?
Need to understand the linkage between critical success factors for theenterprise and each application and technology platform
Perform a quick analysis to understand, in the current environment, theimportance of each application and technology platform
Prioritize each application and technology platform for limited resources
Classify items as mission critical, mission supporting, IT critical, ITsupporting and IT back office (IT record keeping, historical, etc.)
Involve user management in the classifications to set the stage for broadcuts in IT services across the organization that will be viewed as fair
Then, Consider consolidation (e.g. number of servers that run a particular application or
database)
Consider service reductions depending on importance of application
Lower tier of service (e.g. Gold to Silver to Bronze)
Use lower tier of storage
Run on fewer servers
Provide less network bandwidth
Provide less service desk support
15Copyright © 2009, Technology Partners International, Inc. All Rights Reserved.
Outsourcing Supplier ConsiderationsUnilateral actions that can be taken without consulting the supplier
Benchmark to reset pricing
Focus on the invoice Audit the invoice (if not done recently)
Look at all variable priced elements as opportunities
Less PCs etc. due to reduced staff
Mothballed development environments
Possibly reduced network requirements
Ports
Bandwidth
Consider lowering tiers
Service levels (e.g. Gold to Silver to Bronze)
Storage tiers (e.g. high performance to medium performance)
16Copyright © 2009, Technology Partners International, Inc. All Rights Reserved.
Outsourcing Supplier ConsiderationsCollaborative actions taken with the supplier
Providers want revenue and margin but in these times they may find itacceptable to protect margin, knowing that loss of revenue is inevitable
Begin the discussion indicating a willingness to work with the supplier toprotect margin as the revenue shrinks
Actions to consider: Reduction of tiers
Determine the impact of service and price
Reduction of service levels
Tell the supplier what service levels could possibly be lowered
Ask the supplier which of these service levels have the largest impact onsupplier cost and therefore price
17Copyright © 2009, Technology Partners International, Inc. All Rights Reserved.
Outsourcing Supplier ConsiderationsCollaborative actions taken with the supplier - continued
Standards
Often standardization of hardware and software environments can drivesavings
Ask the supplier with their knowledge of the environment whichstandards could be more strongly enforced to provide savings
Administrative burden
Ask the supplier what things the client organization is doing that driveadministrative expense on the supplier side that could be reduced
Reporting requirements
Can contract reporting requirements of all types be scaled back?
Invoicing requirements
Can invoicing requirements be simplified or done more by exception?
Other supplier suggestions
Don’t hesitate to ask the supplier for creative ideas to save cost – betterthey tell you than you hear it from their competition
18Copyright © 2009, Technology Partners International, Inc. All Rights Reserved.
Final Thoughts
There is a clear goal of urgent cost reduction; every organisationmust seek the best combination of “cost to execute”, “risk profile”and “timeline” to meet that goal
There is a range of options for sourcing ICT and back officeprocesses to reduce cost: from high performing internal teams tomulti-sourcing and joint ventures; my expectation is that the use ofoutsourcing will increase in both ICT and the back office, certainlyonce we are past the next election, what ever flavour government isin power.
Outsourcing needs strong management if it is to deliversuccessfully, otherwise the value just leaks away. We can’t affordto let that to happen.
19Copyright © 2009, Technology Partners International, Inc. All Rights Reserved.
Conclusion
We at TPI have been assisting clients in all facets of sourcing for 20years and are available for consultation.
Questions?
20Copyright © 2009, Technology Partners International, Inc. All Rights Reserved.
Knowledge Resources and Forums
Information, Insights & KnowledgeTPI IndexIT Mark-to-MarketWhite PapersSurveys & Research
Market Education Serviceswww.tpi.netConsider the Source blog
www.considerthesourceblog.comThe Platform (client e-newsletter)Gradient (service provider e-newsletter)
We are committed to educating, evolving and enhancing the sourcing industry.
TPI-Hosted EventsSourcing Leadership Exchange (SLE)Sourcing Industry Conference (SIC)
21Copyright © 2009, Technology Partners International, Inc. All Rights Reserved.Copyright © 2009, Technology Partners International, Inc. All Rights Reserved. No part of this document may be reproduced in any form or by any electronic or mechanical means, including
information storage and retrieval devices or systems, without prior written permission from Technology Partners International, Inc.
Arno FranzPartner and Regional President, Asia Pacific+61 (0) 2 9006 1610 Office+61 (0) 412 097 684 [email protected]